Recently a friend of mine suggested I take a look at a slideshow Netflix put together on their culture.   The slide show is long (128 slides) but I definitely think it is worth the pass through as it embodies and codifies a lot of traits most organizations would like to adopt.Some of these are familiar to me--encourage passion and innovation, give people a framework and let them have the freedom to grow within it, and keep your top talent (and let go of the others).  But some of the methods they use were not ones I had encountered in my career.  The innovations I found most intereting tended to pertain to their take on compensation:

• One of their philosophies is to pay top of market.  I have yet to work somewhere where that is the case for any position.  In fact, many of the places I am familiar with have paid below market for the "privilege of working on interesting problems" or some other such statement.   I loved this idea because it means that no one is ever going to leave for financial reasons--so many people measure their worth based on compensation and so by paying the top market rate no one on your staff can feel undervalued or unequally compensated.
• Another approach they took was to treat compensation like a pile of beans--a person can then use those beans to buy stock, get health insurance, etc.  Doing this helps employees see the value of things like good health care, or stock options.  Doing this effectively does away with "golden handcuffs", since the stock vests right away and your compensation year over year is your compensation.  I think this is much harder to adopt for startups where you don't have the flexibility of allowing employees to choose different health care options, and stock options are more optimistic--but it is definitely a good way to help employees see the value in the benefits that come with a job outside of raw salary.  Maybe if you are a small company, you could actually list the costs as line items or something?  Certainly food for thought.
• And finally, give generous severance packages.  The reason they do this is that it allows managers to let go of an employee and not feel bad about the decision.  I wonder how generous is "generous" though?  I would think it would have to be at least 3 months if not more (since a lot of people need that long to find a new job).  I am not sure if this makes sense for a small company though (since you don't always have the money for those big cash payments).  However, there is one thing I am sure of--as soon as you know a person isn't the right fit or doesn't have the right skills it is best to let them go.  Sometimes coaching can help, but in small companies where there is little margin for error you don't necessarily have the time to coach someone.

There is a lot of other great material in the slide deck on setting the right tone for your company and managing your employees.  I would strongly suggest going through the presentation for anyone in a management role.